Project Procurement

Management
 Procurement
• Involves planning for all the resources - people,
goods and services - required by the project.
• It includes:
– selection of goods and services,
– writing and evaluating tenders and estimates and
– negotiating contracts to obtain goods and services for the
project.
• Most organizations do some form of outsourcing to
meet their IT needs and spend most money within
their own country

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Activity Selection Expert to Person When
from the process be responsible needed
WBS (estimates, consulted for
tender, managing
evaluation,
contracts)
Purchase of Standard Purchasing Project 28-03-03
cabling estimates dept. Manager
process.
Contract for Standard Finance Project 28-04-03
lease of formal dept. Manager
hardware tender,
evaluation,
selection and
contract

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 Why Outsource?
• To reduce both fixed and recurring costs
• To allow the client organization to focus on its core
business
• To access skills and technologies
• To increase accountability (how?)

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 Contracts
• A contract
– A mutually binding agreement that obligates the seller
to provide the specified products or services and
obligates the buyer to pay for them
• Contracts can clarify responsibilities and sharpen focus on key
deliverables of a project
• Because contracts are legally binding, there is
more accountability for delivering the work as
stated in the contract

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Procurement Management Processes
• Processes include
– Planning purchases and acquisitions: determining what to
procure, when, and how
– Planning contracting: describing requirements for the products
or services desired from the procurement and identifying
potential sources or sellers (contractors, suppliers, or providers
who provide goods and services to other organizations)
– Requesting seller responses: obtaining information, quotes,
bids, offers, or proposals from sellers, as appropriate
– Selecting sellers: choosing from among potential suppliers
through a process of evaluating potential sellers and negotiating
the contract
– Administering the contract: managing the relationship with the
selected seller
– Closing the contract: completing and settling of each contract

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 Planning Purchases and
Acquisitions
• Identifying which project needs can best be met
by using products or services outside the
organization
• If there is no need to buy any products or
services from outside the organization, then
there is no need to perform any of the other
procurement management processes

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Tools and Techniques for Planning
Purchases and Acquisitions
• Make-or-buy analysis:
– general management technique used to determine whether an
organization should make or perform a particular product or service
inside the organization or buy from someone else
• Often involves financial analysis
– Experts, both internal and external, can provide valuable inputs in
procurement decisions
• Make or bye example
– Assume you can lease an item you need for a project for $800/day.
To purchase the item, the cost is $12,000 plus a daily operational
cost of $400/day
• How long will it take for the purchase cost to be the same as the lease?

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 Make-or Buy Solution
• Set up an equation so both options, purchase and lease,
are equal
• In this example, use the following equation. Let d be the
number of days to use the item
$12,000 + $400d = $800d
Subtracting $400d from both sides, you get:
$12,000 = $400d
Dividing both sides by $400, you get:
d = 30
• If you need the item for more than 30 days, it would be
more economical to purchase it

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 Types of Contracts
• Different types of contracts can be used in
different situations:
– Fixed price or lump sum:
• involve a fixed total price for a well-defined product or service
– Cost reimbursable:
• involve payment to the seller for direct and indirect costs
– Time and material contracts:
• hybrid of both fixed price and cost reimbursable, often used by
consultants
– Unit price contracts:
• require the buyer to pay the seller a predetermined amount per
unit of service
• A single contract can actually include all three of
these categories, if it makes sense for that
particular procurement

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 Cost Reimbursable Contracts
• Cost plus incentive fee (CPIF):
– the buyer pays the supplier for allowable
performance costs plus an incentive bonus
• Cost plus fixed fee (CPFF):
– the buyer pays the supplier for allowable
performance costs plus a fixed fee payment usually
based on a percentage of estimated costs
• Cost plus percentage of costs (CPPC):
– the buyer pays the supplier for allowable
performance costs plus a predetermined percentage
based on total costs

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 Contract Clauses
• Contracts should include specific clauses to take
into account issues unique to the project
• Can require various educational or work experience for
different pay rights
– A termination clause is a contract clause that allows
the buyer or supplier to end the contract
• Contract SOW
– A statement of work is a description of the work
required for the procurement
• If a SOW is used as part of a contract to describe only the work
required for that particular contract, it is called a contract
statement of work
– A SOW is a type of scope statement
– A good SOW gives bidders a better understanding of
the buyer’s expectations
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 Statement of Work (SOW)
Template
I. Scope of Work: Describe the work to be done to detail. Specify the hardware and
software involved and the exact nature of the work.
II. Location of Work: Describe where the work must be performed. Specify the
location of hardware and software and where the people must perform the work
III. Period of Performance: Specify when the work is expected to start and end,
working hours, number of hours that can be billed per week, where the work must
be performed, and related schedule information.
IV. Deliverables Schedule: List specific deliverables, describe them in detail, and
specify when they are due.
V. Applicable Standards: Specify any company or industry-specific standards that
are relevant to performing the work.
VI. Acceptance Criteria: Describe how the buyer organization will determine if the
work is acceptable.
VII. Special Requirements: Specify any special requirements such as hardware or
software certifications, minimum degree or experience level of personnel, travel
requirements, and so on.

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 Planning Contracting
• Involves preparing several documents needed for
potential sellers to prepare their responses and
determining the evaluation criteria for the contract award
– Request for Proposals (RFP): used to solicit
proposals from prospective sellers
• A proposal is a document prepared by a seller when there
are different approaches for meeting buyer needs
– Requests for Quotes (RFQs): used to solicit quotes
or bids from prospective suppliers
• A bid, also called a tender or quote (short for quotation), is a
document prepared by sellers providing pricing for
standard items that have been clearly defined by the buyer

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 Request for Proposal Template

I. Purpose of RFP
II. Organization’s Background
III. Basic Requirements
IV. Hardware and Software Environment
V. Description of RFP Process
VI. Statement of Work and Schedule Information
VII. Possible Appendices
A. Current System Overview
B. System Requirements
C. Volume and Size Data
D. Required Contents of Vendor’s Response to RFP
E. Sample Contract

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 Evaluation Criteria
• It’s important to prepare some form of evaluation
criteria, preferably before issuing a formal RFP or
RFQ
– Beware of proposals that look good on paper; be sure to
evaluate factors like past performance and management
approach
– Can require a technical presentation as part of a
proposal

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 Requesting Seller Responses
• Deciding whom to ask to do the work, sending
appropriate documentation to potential sellers,
and obtaining proposals or bids
• Organizations can advertise to procure goods
and services in several ways
– approaching the preferred vendor
– approaching several potential vendors
– advertising to anyone interested
• A bidders’ conference can help clarify the buyer’s
expectations

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 Selecting Sellers
• Also called source selection
• Involves
– evaluating proposals or bids from seller
– choosing the best one
– negotiating the contract
– awarding the contract
Sample Proposal Evaluation Sheet

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 Seller Selection Process
• Organizations often do an initial evaluation of all
proposals/bids and then develop a short list of
potential sellers for further evaluation
• Sellers on the short list often prepare a best and
final offer (BAFO)
• Final output is a contract signed by the buyer and
the selected seller

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 Administering the Contract
• Ensures that the seller’s performance meets
contractual requirements
• Contracts are legal relationships, so it is
important that legal and contracting
professionals be involved in writing and
administering contracts
• Many project managers ignore contractual
issues, which can result in serious problems

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Suggestions on Change Control for Contracts
• Changes to any part of the project need to be reviewed,
approved, and documented by the same people in the
same way that the original part of the plan was approved
• Evaluation of any change should include an impact
analysis.
– How will the change affect the scope, time, cost, and quality of
the goods or services being provided?
• Changes must be documented in writing.
– Project team members should also document all important
meetings and telephone phone calls
• Project managers and teams just stay closely involved to
make sure the new system will meet business needs and
work in an operational environment
• Have backup plans

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 Closing the Contract
• Involves completion and settlement of contracts
The project team should
– determine if all work was completed correctly and
satisfactorily
– update records to reflect final results
– archive information for future use
• The contract itself should include requirements for
formal acceptance and closure

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